“TWIN DEFICITS” AND THEIR CONSEQUENCES ON THE ECONOMY OF BOSNIA AND HERZEGOVINA
“TWIN DEFICITS” AND THEIR CONSEQUENCES ON THE ECONOMY OF BOSNIA AND HERZEGOVINA

Summary/Abstract: In the past few years, Bosnia and Herzegovina has faced the problems of "twin deficits", which represent the simultaneous occurrence of budget and foreign trade deficits. Despite a significant number of scientific and empirical studies of the parallel occurrence of these two phenomena, there is no clear and unified theoretical position in macroeconomics as to why they occur simultaneously. Their basic characteristic is that they greatly reduce the potential of sustainable economic development. In the short term, they lead to unjustified indebtedness of the country, and such a situation is directly reflected in the growth of interest rates, inflation, falling standards of the population, etc. The long-term consequences of the "twin deficit" are multi-year unfair intergenerational borrowing, because inefficient economic policies not only affect existing generations, but also those to come, leaving them with the burden of repaying loans that were created when they were not even born. In the case when borrowing has an investment character, then transferring the debt burden to future generations can be justified, but very often this is not the case. When it comes to Bosnia and Herzegovina, this country has been facing a series of economic problems since the end of the war destruction, and insufficient competitiveness of the BiH economy and excessive liberalization lead to large and continuous deficits in trade in goods, while on the other hand, high state spending and problems in public finances result in several years of fiscal imbalances, which ultimately endangers the country's international liquidity and macroeconomic stability. The subject of research in this paper is the analysis of the "twin deficit" and the impact of these two macroeconomic categories on the development of Bosnia and Herzegovina. Considering the multi-year imbalances in state revenues and expenditures, as well as imports and exports, the paper aims to investigate the mutual correlation of budget deficits and foreign trade deficits and their reflection on the macroeconomic position and development of Bosnia and Herzegovina. The paper concludes through an empirical analysis of these macroeconomic categories that the simultaneous occurrence of "twin deficits" had a significant negative impact on the economic development of Bosnia and Herzegovina and that all governments facing this problem, as well as Bosnia and Herzegovina, must seriously approach the solution of all its fiscal and foreign trade imbalances and encourage economic measures that go in the direction of strengthening competitiveness, attracting foreign investments, developing domestic production and increasing exports, rationalizing state spending and increasing income at all levels, which will directly affect the reduction of fiscal imbalances and deficits of foreign trade exchanges.

• Details
• Contents